The single biggest difference between the Canadian and American tech scenes

The American technology scene is presided over by consumer facing companies such as Apple, Microsoft and Facebook. In Canada, to an almost complete degree, our best tech companies are enterprise facing; they work behind the scenes and are better known to businesses.

“I don’t pay much attention to them, to be honest.”

This nimble response to an audience question about Facebook at an investor gathering some months ago in Vancouver laid plain a simple fact that many might not realize about the Canadian technology scene.

The speaker was a friend, Ron Shuttleworth, who watched the tech scene closely as a sell side analyst with the likes of M Partners and Jennings, before recently moving to the buy side with StableView Asset Management. Shuttleworth, who has covered names such as Mitel, Descartes Systems Group and Redknee, told the audience that those looking to get a leg up investing in Canadian stocks should forget trying to keep up with the headlines about Facebook and Twitter because most of the time they simply aren’t relevant to Canadian tech.

The Canadian tech scene is often regarded as more staid and less sexy than that of our southern cousin, and Shuttleworth’s response hinted at why.

The single biggest difference between techs north and south of the border is this: the American technology scene is presided over by consumer facing companies such as Apple, Microsoft and Facebook. They dominate headlines and are what most people immediately think of when they think of tech. In Canada, to an almost complete degree, our best tech companies are enterprise facing; they work behind the scenes and are better known to businesses than they are by the average guy or gal on the street.

Think about it. American technology companies are part of your everyday life. You log onto Facebook with your iPhone? Play an Atari game on your PC? Tweet about any of these things? USA! USA!

If you said I want to make a toothbrush for everyone in Canada well, we can ask Procter and Gamble or Johnson and Johnson just how big Canada is in the consumer theatre. So we wake up saying let’s sell our stuff to the US or the Chinese or Germans or Swiss.

In Canada, you would be hard pressed to name a single consumer facing tech that has anything of that impact. Wait, you said BlackBerry, right? Well, that company did essentially invent the smartphone category, but since the release of the iPhone its device business has faded into the background. And CEO John Chen says the company’s turnaround will not focus as much on the consumer side of things, but instead will concentrate on enterprise solutions.

Make no mistake, the U.S has more than its share of important enterprise tech companies. Cisco, Juniper Networks and Alcatel-Lucent manage the very plumbing of the world of communications and go about their business in a fairly quiet manner.

But consumer technology is the wheelhouse of the United States. Brands such as Fed-Ex, Coca-Cola, and Hugo Boss are huge, but they were all recently beaten out by both Apple and Google, who finished one and two, respectively, in a ranking of the world’s top brands.

Canadian brands that enter the global conversation are few and far between, and that’s probably just a function of our small size. There just aren’t many LuluLemons or Royal Banks that can emerge from population of 35-million. But why do global technology brands almost never come from here?

“Canada has some great global enterprise companies,” says Art Mesher, an American who is perhaps best known for turning around Waterloo’s Descartes Systems Group, a software-as-a-service (SaaS) logistics player whose market cap rose more than ten times under his guidance. “OpenText, Descartes, Enghouse Systems, Constellation Software and Hootsuite all operate on the global stage.”

Mesher, who sits on the board of several Canadian techs, says there are fundamental reasons Canadian companies are far more likely to be B2B than B2C.

“If you said I want to make a toothbrush for everyone in Canada well, we can ask Procter and Gamble or Johnson and Johnson just how big Canada is in the consumer theatre. So we wake up saying let’s sell our stuff to the US or the Chinese or Germans or Swiss,” he says. “Taking a consumer app global.. that’s some heavy lifting. Take an enterprise app global.. well that’s not like lifting paperweights but new markets can be be scaled on the backs of or through global customers and integrators standardizing process much easier. Perhaps most important is for Canadian vendors is to understand if if your world is canada it’s a small world after all.”

I suspect we as Canadians like the perceived safety/comfort in known business models which leads us to build businesses that seek monetization earlier in their lifecycle which are bound to be enterprise or SMB focused businesses

Some of the best performing names in the recent Canadian revival of tech in the Canadian markets have not been household names, even within in our own country. Very few people using an iPad to access Youtube on T-Mobile would have ever heard of Waterloo’s Sandvine, but there’s an increasing chance that said person would have benefited from the company’s work. Sandvine makes network policy control equipment and software that gives Internet Service Providers visibility into the traffic on their networks and creates service tiers that ensure internet traffic is properly billed. Sexy? Maybe not. But Canadian analyst Manish Grigo says the growth of data traffic makes it “imperative” for the service providers to upgrade their networks management capabilities, a trend that is a long term positive for Sandvine.

Step onto any Canadian sidewalk and take this poll. Has anyone walking past ever heard of Toronto’s Constellation Software? It’s likely that an afternoon’s worth of queries might result in one or two affirmative nods. This lack of knowledge would be to the detriment of anyone answering in the negative because shares of Constellation have climbed from the low twenty dollar mark to nearly $300 in the past five years. Constellation, of course, doesn’t make gaming apps with flying birds or 3D printers or alternate digital currencies. It acquires software companies that often serve government clients. Again, not sexy. Unless you happen to like making money.

Sandvine and Constellation are just two of the companies that have paced Canada’s the tech revival on Canada’s public markets, they are joined by the likes of Redknee Solutions, Mitel, Solium Capital, Tecsys, Catamaran and a dozen others in being wildly successful without being consumer facing.

But what about the thousands of Canadian techs that aren’t public?

OMERS Ventures Director of Business Development David Crow says there are promising up and coming Canadian techs that are consumer focused, such as BuildDirect, Kik, Frank and Oak, Wattpad and PasswordBox.

“I’m not sure I’d say that Canadian companies are enterprise focused,” says Crow. “There is a strong set of consumer companies. I think consumer companies are harder to get to scale. There are not a lot of companies with the scale or complexity of Kik. Also the amount of cash required to run these companies is huge!”.

Crow says the conservative nature of Canadian business may be shaping many early companies away from a pure consumer focus.

“The hybrid approach is one of value chain,” he says. “Many like Kobo were in a similar part of the value chain. The focus early on most “consumer” platforms is distribution. I suspect we as Canadians like the perceived safety/comfort in known business models which leads us to build businesses that seek monetization earlier in their lifecycle which are bound to be enterprise or SMB focused businesses.”

About Nick Waddell

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.